Transcript The Impact of Microfinance: What do we know?

The Impact of Microfinance:
What do we know?
Dr. Ajay Tannirkulam (CMF -IFMR)
Prathap K.B. (JPAL South Asia)
CMF and JPAL
CMF is a non-profit, non-partisan research centre housed
within the Institute for Financial Management and Research in
Chennai
CMF aims to improve the accessibility and the quality of
financial services for the poor through rigorous research,
knowledge dissemination and evidence-based policy
outreach.
J-PAL is a network of 70 affiliated professors around the world
using Randomized Evaluations to answer questions critical to
poverty alleviation.
JPAL’s mission is to reduce poverty by ensuring that policy is
based on scientific evidence.
Why Microfinance?
Access to finance can potentially enhance welfare and
productivity by • helping managing risk (through movement of economic
resources across geography and time)
• smoothing consumption through resource movement over
time
• helping ventures expand through access to capital
(Merton 1993, Arrow and Debreau 1954, Ananth et al. and
references therein - in prep)
Components in the microfinance
puzzle
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Credit
Savings and Pensions
Insurance
Transfers
Wealth-advisory services?
Randomized Evaluations
• We want to know what would happen to the same
group of people in the absence of the programme.
• Since we can’t observe the same person at the same
time with and without programme, we need a
comparison group that creates a similar situation.
• By randomly assigning access to financial services,
randomized trials ensure that the only difference, on
average, between clients and non-clients is access to
the program.
• Any difference between the groups can be confidently
attributed as the impact of the program.
•
Impact of Micro Credit – The Case of
Spandana’s Expansion in Hyderabad
(Banerjee et al. 2010)
Traditional microcredit program
– Group liability
– Weekly or monthly repayment
– Starting loan is Rs. 10,000 (~$250)
– Interest rate changed over the period but was around 12% per year (non
declining balance; ~24% APR)
• By randomizing the selection, two groups of 52 slums were
created which were virtually equivalent along all
demographic, social and economic characteristics.
• Spandana then offered micro-credit into one group of 52
slums, called the “treatment group,” and for the duration of
the study refrained from introducing micro-credit into the
other group of 52 slums, “the control group.”
Results from Endline 1
• Households surveyed 15-18 months after the
offer of credit.
• Results heterogeneous.
– 1 in 8 new borrowers start a new business
– Those who already had businesses invest in durables and
restrict their “temptation” consumption
– Others consume more.
– No discernible effects on measures of health, education,
empowerment
Results by Business status
• Old business owners borrow and invest in durable
goods
• Among those who didn’t have a business 1 year ago:
– Those with high propensity (literate, non-wage-working
spouse) borrow and reduce nondurable consumption
– Those with low propensity (illiterate and/or wage-working
spouse) borrow and increase nondurable consumption
What do evaluations from other
microcredit programs tell?
• Crepon et al. 2011 find similar heterogeneity
and impact for a rural-Morocco credit
program.
• Karlan and Zinman 2011, from an experiment
in Philippines found negative impact on
business and positive changes in ability to
cope with shocks.
Credit Withdrawal
• The Andhra Crisis of 2010 provides an
opportunity to understand the impact of a
negative credit shock.
• Preliminary findings from a CMF rural AP
panel (non experimental) suggest a 15-20%
fall in nominal consumption expenses
between 2009 and 2012 for MFI clients.
• Spandana 3 (survey currently underway) will
shed details of impact on an urban sample.
Microsavings
• Access to formal commitment savings can
increase savings substantially (Ashraf et al. 2005)
• Access to formal savings can lead to increased
business investment and reduce vulnerability to
shocks (Dupas and Robinson 2011 – Kenya Study)
• Commitment savings increased agriculture input
use, the value of agriculture output and
household expenditure (Brune et al. 2011 –
Malawi Study)
Microinsurance
Insurance is a complex product – difficult to
design well and difficult to market.
• Product uptake is extremely price sensitive.
Trust plays a very important role in uptake.
• Insured farmers do not change input use and
shift towards riskier crops with the potential
for higher returns.
(Gine et al 2010 – AP, Cole et al. 2011 – Gujarat,
Karlan et al. in prep)
Key Takeaway
Bauchet et al. (2011) and references therein
• Impact of financial services is heterogeneous and
success/failure is mixed.
– Men did not show discernible welfare gains in the Dupas and Robinson
(2011) savings experiment. Women did.
• Product design is extremely important
– Karlan and Zinman (2010) show that a cash-credit program in South
Africa has positive impacts on household income and food
consumption
– Flexibility in loan repayment can increase business investment and
profits (Field et al. 2010)
– Farmers with access to regular savings accounts showed insignificant
gains in input use and output. Farmers with commitment savings
increased input and showed a 22% gain in value of crop output (Brune
et al. 2011).
Ongoing Impact Work in India
• Health Insurance
• The interplay between psychology and savingsproduct design
• Weather Insurance
• Micro Pensions - understanding uptake and
impact
• Agriculture Credit
• The impact of access to the full suite of financial
products (including wealth advisory)
Questions?
Thank You